Chapter 06 – Introduction to Consumer Credit
1. (p. 171) Credit is an arrangement to receive cash, goods, or services now and pay for them in
the future.
2. (p. 171) Consumer credit refers to the use of credit for personal needs (except a home
mortgage) by individuals.
3. (p. 171-172) Most consumers have only one choice in financing current purchases.
Chapter 06 – Introduction to Consumer Credit
4. (p. 172) Consumer credit is based on trust in people’s ability and willingness to pay bills when
due.
5. (p. 172) Consumer credit dates back to colonial times.
6. (p. 172) Most economists do not recognize consumer credit as a major force in the American
economy.
Chapter 06 – Introduction to Consumer Credit
7. (p. 172) The aging of the baby boom generation has added to the growth of consumer credit.
8. (p. 172) There are very few valid reasons for using credit.
9. (p. 172) “Shopaholics” and young adults are most vulnerable to misusing credit.
10. (p. 172) College students are not a prime target for credit card issuers.
11. (p. 173) Credit when effectively used, can help you have more and enjoy more.
Chapter 06 – Introduction to Consumer Credit
12. (p. 173) It is safer to use credit, since charge accounts and credit cards let you shop and travel
without carrying large amounts of cash.
13. (p. 174) Perhaps the greatest disadvantage of using credit is the temptation to overspend.
14. (p. 174) Although credit allows more immediate satisfaction of needs and desires, it does not
increase total purchasing power.
15. (p. 176) With an open-end credit, you pay back one-time loans in a specified period of time
in equal amounts.
Chapter 06 – Introduction to Consumer Credit
16. (p. 175) With closed-end credit, loans are made on a continuous basis and you make at least
a partial payment each billing period.
17. (p. 175) Closed-end in credit is used for a specific purpose and involves a specified amount.
18. (p. 175) With closed-end credit, generally the seller holds the title to the merchandise until
the payments have been completed.
19. (p. 175) Installment sales credit is a loan that allows you to receive high-priced items, such as
large appliances or furniture.
Chapter 06 – Introduction to Consumer Credit
20. (p. 175) Installment cash credit is a direct loan of money for personal purposes, home
improvements, or vacation expenses.
21. (p. 175) Single lump-sum credit is a loan that must be repaid in total on a specified day,
usually within 30 to 90 days.
22. (p. 175-176) Using a credit card, such as Visa or MasterCard, is an example of closed-end
credit.
23. (p. 176) Interest is a periodic charge for the use of credit, or other finance charges.
Chapter 06 – Introduction to Consumer Credit
24. (p. 176) Many retailers use open-end credit.
25. (p. 177) The credit cardholders who pay off their balances in full each month are known as
convenience users.
26. (p. 178) Debit cards are often called bank cards, ATM cards, cash cards, and check cards.
27. (p. 178) If your debit card is lost or stolen, you must work directly with the issuer.
Chapter 06 – Introduction to Consumer Credit
28. (p. 180) You should sign your new credit cards as soon as they arrive.
29. (p. 181) Department stores and gasoline companies are good places to obtain your first credit
card.
30. (p. 179) A home equity loan is usually set up as a revolving line of credit, typically with a
variable interest rate.
31. (p. 179) With a revolving line of credit, borrowings are permitted up to a specified limit and
for a stated period.
Chapter 06 – Introduction to Consumer Credit
32. (p. 183) The debt payments-to-income ratio is calculated by dividing your total liabilities by
your net worth.
33. (p. 183-184) The debt-to-equity ratio is calculated by dividing your monthly debt payments
(not including house payments) by your net worth.
34. (p. 184) The smaller the debt-to-equity ratio, the riskier the situation is for lenders and
borrowers.
35. (p. 184) The larger the debt-to-equity ratio, the riskier the situation is for lenders and
borrowers.
Chapter 06 – Introduction to Consumer Credit
36. (p. 185) When you cosign a loan, you are being asked to guarantee this debt.
37. (p. 185) A lender requires a cosigner even when a borrower meets the lender’s criteria for
making a loan.
38. (p. 185) If you cosign, the creditor can collect this debt from you without first trying to
collect from the borrower.
39. (p. 185) If you cosign and the debt is not paid off, that fact does not become a part of your
credit record.
Chapter 06 – Introduction to Consumer Credit
40. (p. 186) The Federal Trade Commission receives more consumer complaints about credit
bureaus than about any other industry.
41. (p. 186) The accuracy of credit reports has worsened recently.
42. (p. 187) The Fair Credit Reporting Act regulates the use of credit reports, requires the
deletion of obsolete information, and gives consumers access to their files.
43. (p. 186) Credit bureaus obtain their data from banks, finance companies, merchants, credit
card companies, other creditors, and court records.
Chapter 06 – Introduction to Consumer Credit
44. (p. 187) Your friends and neighbors can get credit information about you.
45. (p. 187) Most of the information in your credit file may be reported for only seven years. If
you have declared personal bankruptcy, that fact may be reported for 10 years.
46. (p. 193) The Equal Credit Opportunity Act is very specific about how a person’s age may be
used in credit decisions.
47. (p. 192) In the 5 Cs of credit, capacity refers to the borrower’s attitude toward his or her
credit obligations.
Chapter 06 – Introduction to Consumer Credit
48. (p. 192) In the 5 Cs of credit, character refers to the borrower’s attitude toward credit
obligations.
49. (p. 192) In the 5 Cs of credit, capacity refers to the borrower’s financial ability to meet credit
obligations.
50. (p. 192) In the 5 Cs of credit, capital refers to your assets or net worth.
51. (p. 192) In the 5 Cs of credit, capital refers to your financial ability to meet credit
obligations.
Chapter 06 – Introduction to Consumer Credit
52. (p. 192) In the 5 Cs of credit, collateral is an asset that you pledge to a financial institution to
obtain a loan.
53. (p. 192) In the 5 Cs of credit, conditions refers to general economic conditions that can affect
your ability to repay a loan.
54. (p. 193) A creditor may ignore your retirement income in rating your application.
55. (p. 194) You may not be denied credit because you receive Social Security or public
assistance.
Chapter 06 – Introduction to Consumer Credit
56. (p. 195) The Fair Credit Billing Act sets the procedures for promptly correcting billing
errors.
57. (p. 196) The Fair Credit Billing Act has a provision in which a lender can threaten your
credit rating while you are resolving a billing dispute.
58. (p. 198) When imposters take your name, they are committing a crime.
59. (p. 198) If someone has stolen your identity, the Federal Trade Commission recommends
that you contact the fraud departments of each of the three major credit bureaus.
Chapter 06 – Introduction to Consumer Credit
60. (p. 172) Consumer credit:
61. (p. 172) When did installment credit explode on the American scene?
62. (p. 172) The baby boom generation currently represents about 30 percent of the population
but holds nearly ____________ percent of the debt outstanding.
Chapter 06 – Introduction to Consumer Credit
63. (p. 174) By paying cash for a purchase, you:
64. (p. 175) Another name for closed-end credit is:
65. (p. 175) A good example of closed-end credit is:
Chapter 06 – Introduction to Consumer Credit
66. (p. 175) Mortgage loans, automobile loans, and installment loans for purchasing furniture or
appliances are examples of:
67. (p. 177) Another name for open-end credit is:
68. (p. 176) The maximum amount of credit you are allowed by a creditor is called
Chapter 06 – Introduction to Consumer Credit
69. (p. 176) A good example of open-end credit is:
70. (p. 175) Installment sales credit is a:
71. (p. 176) Karen is notified by her credit card company that the credit limit on her credit card
has just been increased to $10,000. This is one example of a change related to
Chapter 06 – Introduction to Consumer Credit
72. (p. 175) Installment cash credit is a:
73. (p. 176) A credit arrangement that has no extra costs and no specific repayment plan is
called:
74. (p. 177) Revolving check credit is a: